Court allows additional tax charges after 26 years of prosecution - timing irrelevant

Get the full picture - access the original judgement of the court order here

Case Name

G. Victor Devasahayam vs Assistant Commissioner of Income Tax (High Court of Madras)

Crl.R.C.Nos.826 & 827 of 2017 and Crl.M.P.Nos.7568 to 7571 of 2017

Date: 16th November 2021

Key Takeaways

• Courts can allow additional charges even at very late stages of prosecution (after 26 years in this case)
• The timing of when additional charges are sought is irrelevant if the legal requirements are met
• When facts are common between original and additional charges, and proper sanction exists, alteration of charges is permissible
• Tax evasion cases can include both failure to pay tax and failure to pay tax arrears as separate but related offenses

Issue

Can the prosecution add additional charges under Section 276C(2) of the Income Tax Act (for non-payment of tax arrears) after 26 years of ongoing prosecution, when the case was already at the argument stage?

Facts

The Business Background (1983-84):

• Devasahayam was in the pesticide and chemicals business with research activities
• He filed his tax return claiming a loss of Rs. 5,74,033, which included Rs. 59,88,893 for purchasing land and building for research purposes
• The tax officer rejected this claim, saying the property was bought just 4 days before the assessment year ended, so it couldn’t have been used for research

The Tax Assessment (1986):

• The assessment was completed on July 20, 1986, adding Rs. 59,88,893 as income
• Tax of Rs.39,41,253 was levied along with a penalty of Rs. 63,19,208
• Notices were issued for tax arrears and assets were attached

The Criminal Case (1991-2021):

• Criminal complaints were filed in 1991 under various sections including Section 276C(1), 277, and 278B of the Income Tax Act
• The case proceeded for 26 years with witness examinations
• In 2021, after examining an additional witness (P.W.7 - a tax recovery officer), the prosecution sought to add charges under Section 276C(2) for non-payment of tax arrears

Arguments

Petitioner’s Arguments (Devasahayam):

• Adding charges after 26 years of prosecution is unfair and unsustainable in law
• The non-payment of tax arrears was already known in 1991 when the original complaint was filed - it’s not new information
• This amounts to “endless prosecution” when the case was about to conclude
• The timing is inappropriate as the case had reached the argument stage

Respondent’s Arguments (Income Tax Department):

• The additional evidence from P.W.7 (tax recovery officer) justified the additional charges
• Legal requirements for altering charges under Section 216 of Cr.P.C. were met
• Proper sanction under Section 279(1) of Income Tax Act already existed

Key Legal Precedents

The court relied on the Supreme Court judgment in Dr. Nallapareddy Sridhar Reddy Vs. The State of Andhra Pradesh & Ors. in Crl.A.No.1934 of 2019, which established that “the stage of the proceedings is irrelevant for alteration of the charge.”

The court also referenced Section 216(5) of Cr.P.C., which states that new sanction is not required when sanction has already been obtained for prosecution on the same facts as those on which the altered or added charge is based.

Judgement

The court dismissed Devasahayam’s challenge and allowed the additional charges to proceed. Here’s the court’s reasoning:

1. Same Assessment Year: Both the original charge (Section 276C(1) - tax evasion) and the additional charge (Section 276C(2) - non-payment of tax) related to the same assessment year and common facts
2. Proper Legal Framework: The requirements under Section 216 of Cr.P.C. for altering charges were satisfied, and existing sanction under Section 279(1) of Income Tax Act covered both offenses
3. Timing Irrelevant: Following Supreme Court precedent, the stage of proceedings doesn’t matter when legal requirements for charge alteration are met
4. Factual Disputes for Trial: Questions about whether proper notices were served should be decided during trial, not at the charge-framing stage

FAQs

Q1: Why did this case take 26 years?

A: The judgment doesn’t specify reasons for the delay, but it involved complex tax matters, multiple assessment years, clubbing of cases, examination of witnesses, and various procedural applications over the years.

Q2: What’s the difference between Section 276C(1) and 276C(2)?

A: Section 276C(1) deals with tax evasion (not paying the tax you owe), while Section 276C(2) deals with non-payment of tax arrears (not paying tax that has been assessed and demanded).

Q3: Can charges always be added at any stage of prosecution?

A: Not always, but when the legal requirements under Section 216 of Cr.P.C. are met - including that the facts are common and proper sanction exists - courts can allow additional charges regardless of timing.

Q4: What happens next in this case?

A: The case will proceed to trial with both the original and additional charges. The court will then determine guilt or innocence on all charges based on the evidence presented.

Q5: Does this mean the prosecution can keep adding charges indefinitely?

A: No, they still need to meet legal requirements under Section 216 of Cr. P.C., including having the same factual foundation and proper sanction. The court examines each application on its merits.

The matter is heard through "Video Conference".

2. The fourth accused is the revision petitioner herein.

3. These criminal revision petitions are filed against the order

dated 24.11.2016 passed by the learned Additional Chief Metropolitan

Magistrate, Economic Offences I, Egmore, Allikulam, Chennai, in

Crl.M.P.Nos.3147 & 3148 of 2013, respectively in E.O.C.C.Nos.181 and

182 of 1991, respectively.

4. After hearing the learned counsel for the petitioner and the

learned Standing counsel for the Income Tax and after perusal of the order,

the chequed history of the case is as under:

4(i) originally two complaints were filed against the accused herein

and others in E.O.C.C.Nos.181 and 182 of 1991, for the offences under

Sections 276C(1), 277 and 278B of the Income Tax Act, 1961 and Sections

120B, 193, 196, 420 read with 511 of IPC for 2 Assessment years namely

1983-84 and 1984-85 respectively. On appearance of the accused,

Crl.M.P.No.23 of 1993 was filed under Section 218 of Cr.P.C., by the

accused for clubbing of E.O.C.C.No.182 of 1991 along with

E.O.C.C.No.181 of 1991 since the issues relating to the complaints were the

same in both the cases. The said petition was allowed by the learned

Magistrate on 28.01.1993 on a No objection endorsed by the complainant.

Accordingly, the cases were clubbed and evidence was recorded jointly,

charges were framed under the above Sections with 2 counts on each of the

said charge. Thereafter, the witnesses were cross examined.

4(ii) The complainant's counsel filed a memo for reasons stated herein

praying the lower Court to frame separate charges in both the cases and also

an application in Crl.M.P.No.1015/2014 & 1016/2014 under Section 256 of

Cr.P.C., for altering the charge and the said memo and applications were

allowed by order dated 14.08.2014.

4(iii) In the meanwhile, the complainant filed an application in

Crl.M.P.No.277 of 2013 under Section 311 of Cr.P.C., to examine additional

witness and the said application was allowed by an order dated 03.03.2011.

4(iv) thereafter, based on the evidence of P.W.7, the complainant filed

an application under Section 216 of Cr.P.C., in Crl.M.P.No.3147/2013 to

frame an additional charge under Section 276C(2) of the Income Tax Act for

non-payment of tax arrears. The said petition was allowed by order dated

24.11.2016 and the present revision is against the said order. Framing of

additional charges based upon the additional evidences let in after 26 years

of persecution is unsustainable in law and is liable to be set aside.

4(v) the allegation in the complaint filed in 1991 was that the

petitioner was in the trade of manufacturing and sale of Pesticides and

Chemicals for agricultural purpose and was also engaged in Research

activities. On 30.06.1983, the petitioner filed return of Income for the

Assessment year 1983-84 claiming a loss of Rs.5,74,033/- wherein a Capital

Expenditure of Rs.1,24,10,880/- was claimed on Scientific Research

relating to his business. The above said sum included a claim of

Rs.59,88,893/- being the cost of purchase of Land and Building at No.62,

Spur Tank Road, Chetpet, Chennai.

4(vi) The First accused Company was having their Research and

Development wing at Padappai and Thiruvottiyur and was recognized by

the Indian Council of Agricultural Research (ICAR) under Section 25(1) (2)

of the Income Tax Act, 1961. As suggested by the study team of ICAR, the

accused Company wanted to have a Centralised Laboratory within the City

of Madras for its Process and Development work and accordingly the above

mentioned property was purchased. But the said claim was rejected by the

Assessing Officer mainly on the ground that the property was purchased

barely 4 days before the completion of the Assessment year on 30.06.1982

and therefore, it could not have been used for the Scientific Research as

claimed. The accused submits that disallowing the said claim, the

assessment was completed on 20.07.1986 by adding the aforesaid sum of

Rs.59,88,893/- as income and apart from the levying tax of Rs.39,41,253/-

levied a sum of Rs.63,19,208/- as penalty. Thereafter, notices were issued

for the tax arrears and assets of the first accused were attached.

4(vii) thereafter on 26.03.1991, the respondent launched the

prosecution for offences under Section 276C(1), 277 and 278 of the Income

Tax Act along with Section 120B, 193, 196, 420 read with 511 of IPC., and

the case proceeded thereafter as stated earlier. The petitioner submits that

the present allegation for non-payment of tax arrears existed even in 1991

when the complaint was filed originally and therefore, it is not a fresh fact which either arise subsequent to the filing of the complaint or which was not known to the complainant when the complaint was originally filed.

4(viii) all along the accused have defended himself based upon the

original charge of evasion and after 26 years when the case was to conclude

by itself, the application by the complainant to frame charge for non-

payment of tax would amount to an endless prosecution on the part of the

complainant.

5. The learned counsel for the petitioner would contend that the

petition filed by the prosecution is after 26 years of prosecution.

5(i) Second submission: The present charge of non-payment of tax

existed even when the complaint was filed originally in the year 1991 and

there is nothing between for coming forward prompting the complainant to

file the present application. The present application is filed to frame

additional charge based upon the additional evidence of P.W.7 is not

maintainable.

6. Mr.L.Murali Krishan, learned Special Public Prosecutor for the

Income Tax, relied upon the judgment of the Hon'ble Supreme Court in

Dr.Nallapareddy Sridhar Reddy Vs. The State of Andhra Pradesh & Ors

in Crl.A.No.1934 of 2019.

7. From the records, it is seen that for the Assessment Year

relating to 1983-84 and 1984-85 of E.O.C.C.Nos.181 & 182 of 1991, as he

moved by the complainant and it has reached the stage of 313 questioning.

At this juncture, the present application is filed and it was allowed.

8. On perusal of the private complaint filed by the Income Tax

Department and the evidence of P.W.7, I find that after completion of the

prosecution, the prosecution has examined five witnesses and defence side

evidence is closed. Thereafter, it appears that the application is filed by the complainant/Assistant Commissioner of Income Tax, under Section 311 of

Cr.P.C., to need an additional evidence namely P.W.7/Recovery officer,

through whom Exs.P42 to P.48 were marked relating to the Assessment Year

1988-89, 1989-90. After examination of the said Tax Recovery Officer by

name C.Gayathri, it appears that the prosecution has filed the present

application under Section 216 of Cr.P.C., for framing of additional charges.

The initial charge in the main case in E.O.C.C.Nos.181 and 182/1991, are

are filed under Section 276(1) of Income Tax Act and the said charge has

been framed on 02.09.2006, that was for evasion of tax. Now by way of

additional charge, they want to include the fresh charge under Section

276C(2) of Income Tax Act, 1961 namely evasion of payment of tax.

9. According to the petitioner, the newly examined witness viz.,

tax recovery officer viz., Gayathri has not issued any notice for recovery of tax, interest, and penalty and notice was also not served, it was disputed by the Income Tax Officer. The said question is the question of fact. It is for the trial, the necessary question has to be confronted with the concern material witness.

10. The lower Court record reveals that as per Ex.P.44, P.W.7 has

stated that demand notice in ITCP.No.1 dated 04.03.1988 was issued for

Assessment Year 1983-84, directing the defaulter of company to pay the

arrears within 15 days. As per Exs.P.45 & P.46, the accused defaulter

company was issued notices for payment of interest under Section 220(2)

for the Assessment Year 1983-1984. Since, it is framing of additional

charge, I am imposing self-restriction upon myself, except to say that the

factum of private notice was issued or not, it is the matter for trial. With

regard to the proposed charge, I find that the facts are in common for both

offences under Section 276(C)(1) and 276(C) (2) of Income Tax Act.

11. The main E.O.C.C.Nos.181 and 182/1991, charges for the

offence under Section 276(C)(1), after examination of P.W.7, in connection

with the very same Assessment Year for non payment of Tax, charge under

Section 276(C)(2) Income Tax Act was now sought to be added by way of

alteration of charge. It is not disputed that sanction under Section 279 (1) of Income Tax Act is already been granted and sanctioned for the offence

under Section 276(C)(1) and other offences. Since the expression "unless

the sanction had been already obtained for a prosecution on the same facts

as those on which, the altered or added charge is found", new or fresh

sanction is not required, as contemplated under Section 216(5) of Cr.P.C., is present.

11(i) As stated supra, the Assessment Year is one and the same. Initial

charge is for evasion of tax. Now, by way of alteration of charge, it is

included to add evasion of payment of tax and hence, I do not find any error

in the order passed by the Special Sessions Judge, in allowing the

application.

12. The last point that was urged by the learned counsel for the

petitioner is with regard to the stage of the case. According to the petitioner, the matter is posted for argument, at this stage, whether, this type of nature of the petition can be entered.

13. The Hon'ble Supreme Court in Dr.Nallapareddy Sridhar

Reddy Vs. The State of Andhra Pradesh & Ors. in Crl.A.No.1934/2019,

dated 21.01.2020, has held that the stage of the proceedings is irrelevant for alteration of the charge and hence, I find no illegality or irregularity in the impugned order passed by the learned Sessions Judge.

14. Accordingly, these criminal revision petitions are dismissed.

Consequently, connected miscellaneous petitions are closed.

16.11.2021